1. Peer Review Overview Allison M. Henry, CPA, CGMA
PICPA Vice President –Professional & Technical Standards

2. The Public Trust
“All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek continually to demonstrate their dedication to professional excellence.”

3. The Public Trust
“The accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce.
This reliance imposes a public interest responsibility on certified public accountants.
The public interest is defined as the collective well-being of the community of people and institutions the profession serves.”

4. Institutions Relying on CPAs

5. How do CPAs facilitate the
orderly functioning of commerce?

6. Ensuring Excellence AICPA Statements on Standards for Quality Control
Firms with an accounting and auditing practice must establish and maintain a system of quality control that provides reasonable assurance that
the firm and its personnel comply with professional standards and applicable legal and regulatory requirements, and
reports issued by the firm are appropriate in the circumstances.

7. AICPA Peer Review Program
The peer review program began in 1977 as a voluntary program dedicated to enhancing the quality of accounting, auditing and attestation services performed by AICPA members.
In a 1987 referendum, AICPA members voted to make peer review mandatory, but also to keep the results confidential.
Firms are required to have a peer review performed every three years.
Since 1977, more than 50,000 CPA firms have undergone more than 160,000 peer reviews.

8. What is Peer Review?
A statutory requirement for firms with an accounting and auditing practice and a condition of membership in the AICPA
A program of self-regulation designed to ensure that firms are performing quality work
A periodic outside evaluation of a firm's accounting and auditing practice

9. 2 Types of Peer Reviews
System reviews – For firms that perform audits, examinations under the Statements on Standards for Attestation Engagements (SSAE), or engagements under the standards of the Public Company Accounting Oversight Board
Engagement reviews – For firms that perform engagements under Statements on Standards for Accounting and Review Standards (SSARS), and under the SSAEs (except for examinations)
Note - Firms whose only level of service is performing financial statement preparation under the SSARS are not required to have a peer review.

10. 2 Types of Peer Reviews
System Review – an evaluation of a firm’s system of quality control and the firm’s compliance with its system
Engagement Review – no evaluation of the firm’s system; report based only on engagements reviewed
In both cases, value of the process to both the firm and the public interest is its remedial nature
System reviews for firms that perform as highest level of service:
Audits
Attestation engagements: only examinations of prospective financial statements or service organization engagements - all others require engagement review.
Engagement review for firms that only perform compilations, reviews and most engagements under the SSAEs
EXCERPT FROM STANDARDS: .06 An accounting and auditing practice for the purposes of these standards is defined as all engagements covered by Statements on Auditing Standards (SASs); Statements on Standards for Accounting and Review Services (SSARS)4 (see interpretations); Statements on Standards for Attestation Engagements (SSAEs); Government Auditing Standards (the Yellow Book) issued by the U.S. Government Accountability Office; and audits of non-SEC issuers performed pursuant to the standards of the Public Company Accounting Oversight Board (PCAOB) (see interpretations).

11. How is a system review performed?
Firms hire a qualified, independent peer reviewer(s) to review their system of quality control over their A&A practice.
Objective – to provide assurance that the system was designed properly and functioning throughout the peer review year.

12. How is a system review performed?
The reviewer(s) visits the firm’s office*, looks at the firm’s quality control document, performs staff and partner interviews, looks at selected human resource files, selects attest engagements that represent a cross-section of the firm’s practice, looks at the financial statements and key documentation for those engagements.
*Performed on-site with few exceptions (must be preapproved).

13. System Review Report
System Review Report October 31, 20XX To the Partners of [or other appropriate terminology] XYZ & Co. and the Peer Review Committee of the [insert the name of the applicable AE] We have reviewed the system of quality control for the accounting and auditing practice of XYZ & Co. (the firm) in effect for the year ended June 30, 20XX. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. As a part of our peer review, we considered reviews by regulatory entities, if applicable, in determining the nature and extent of our procedures. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Our responsibility is to express an opinion on the design of the system of quality control and the firm’s compliance therewith based on our review. The nature, objectives, scope, limitations of, and the procedures performed in a System Review are described in the standards at

14. System Review Report
As required by the standards, engagements selected for review included (engagements performed under Government Auditing Standards; audits of employee benefit plans, audits performed under FDICIA, audits of carrying broker- dealers, and examinations of service organizations [Service Organizations Control (SOC) 1 and 2 engagements].
In our opinion, the system of quality control for the accounting and auditing practice of XYZ & Co. In effect for the year ended June 30, 20XX, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiencies or fail. XYZ & Co. has received a peer review rating of pass.
Smith, Jones and Associates
[Name of team captain’s firm]

15. How is an Engagement Review Performed?
Firms hire a qualified, independent peer reviewer, or have Committee Appointed Review Team (CART), to look at selected engagements and certain documentation.
Objective is to “evaluate whether engagements submitted for review are performed and reported on in conformity with applicable professional standards in all material respects.”

16. Engagement Review Report
Engagement Review Report September 30, 20XX To the Partners of [or other appropriate terminology] XYZ & Co.and the Peer Review Committee of the [insert the name of the applicable administering entity] We have reviewed selected accounting engagements of XYZ & Co. (the firm)|| issued with periods ending during the year ended June 30, 20XX. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants. The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Our responsibility is to evaluate whether the engagements submitted for review were performed and reported on in conformity with applicable professional standards in all material respects. An Engagement Review does not include reviewing the firm’s system of quality control and compliance therewith and, accordingly, we express no opinion or any form of assurance on that system. The nature, objectives, scope, limitations of, and the procedures performed in an Engagement Review are described in the standards at

17. Engagement Review Report
Based on our review, nothing came to our attention that caused us to believe that the engagements submitted for review by XYZ & Co.|| issued with periods ending during the year ended June 30, 20XX, were not performed and reported on in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass, pass with deficiency(ies), or fail. XYZ & Co has received a peer review rating of pass.
Smith, Jones and Associates [Name of review captain’s firm on firm-on-firm review or association formed review team] [or] John Brown, Review Captain [Committee-appointed review team review]

18. Who Can Perform a Peer Review?
CPA
Independent
Peer (partner for system reviews)
Competent
AICPA member in good standing with at least 5 years of recent public accounting experience
Active in public practice at a supervisory level in a firm with a pass for its most recent peer review (partner level for a system review)
Possess current knowledge of professional standards applicable to the kind of practice to be reviewed, including quality control and peer review standards
Comply with ongoing training requirements 
No reciprocal reviews, No QC work in year of or year preceding the peer review year. Restrictions based on other financial interests and relationships.

19. Peer Review Results Matter for Further Consideration Form (MFC)
Used to document “no” answers to questions on the peer review checklists
Includes:
Description of the “matter”
Professional standards reference as applicable
May be resolved or elevated to a finding, deficiency or significant deficiency
Finding for Further Consideration Form (FFC)
Used to document and communicate relatively minor items
Includes suggestions for improvement
Finding for Further Consideration Form (FFC) required where there is more than a remote possibility that applicable professional standards will not be followed
Replaced letter of comments because LOC was misunderstood and improperly used – comments meant to be more in the order of “suggestions for improvement” rather than indications of areas needing significant attention.

20. Peer Review Results
Deficiency (System) – indicates a situation in which the firm would not have reasonable assurance of performing or reporting in conformity with applicable professional standards in one or more important respects
Deficiency (Engagement)
information material to the understanding of the financial statements or accountant’s report not present, or
omission of a critical procedure required by professional standards

21. Types of Reports – Engagement Review
Pass
Pass with Deficiencies
Fail
All engagements reviewed were performed and reported on in conformity with applicable professional standards
At least one, but not all, engagements reviewed contain one or more deficiencies that are described in the report
All engagements reviewed contain one or more deficiencies that are described in the report

22. Types of Reports – System Review
Pass
Pass with Deficiencies
Fail
Firm’s system is suitably designed and firm has complied with its policies and procedures so that it has reasonable assurance of performing and reporting in conformity with applicable professional standards.
Firm’s system is suitably designed and the firm has complied with its policies and procedures except for a certain deficiency or deficiencies that are described in the report.
Firm’s system is not suitably designed or has not been complied with such that it does not have reasonable assurance of performing or reporting in conformity with professional standards in all material respects.
The peer reviewer would have found and reported “significant deficiencies”

23. peer review process and key roles of involved parties

24. Roles Overview AICPA NASBA and the State Boards of Accountancy
Peer Reviewers
Technical Reviewer
Committee and Report Acceptance Bodies
Administering Entities (AEs)

25. Role of the AICPA
Maintain a high quality self-monitoring program to ensure that the interests of regulatory bodies and the public are served
Maintain public file for transparency
Maintain program standards including technical standards and administrative guidance
Provide and maintain IT support for PRISM system (AICPA’s peer review database)
Provide oversight of the administering entities, review acceptance bodies, firms and reviewers to ensure that the program is of consistent quality across the country
Engagement Oversights
Biannual Report on Oversight
RAB Oversight

26. National Association of the State Boards of Accountancy
NASBA - A forum for the 55 SBOAs
Works closely with the AICPA on the Uniform Accountancy Act (UAA)
UAA includes peer review and professional ethics

27. State Boards of Accountancy
Regulatory oversight of firms and practitioners
Involvement varies by state
Direct oversight of peer review program
Access to peer review reports
Publicly available information
Action based on poor results

28. State Boards of Accountancy that Require Peer Review
55 licensing jurisdictions require peer review
41 AE’s cover 55 licensing jurisdictions
Total Population – 27,000 firms with approximately 9,000 peer reviews per year
PA has 1400 firms (about 450 reviews per year)
Yes No
Yes – Effective 2015
Yes – Effective 2014

30. NASBA Seeking enhanced transparency Publicly available Information
Firm’s name and address of the main office
Firm’s program enrollment or termination
Date of acceptance and period covered by the firm’s most recently accepted peer review

31. Peer Review Transparency versus Confidentiality
Peer Review Transparency versus Confidentiality
Facilitated State Board Access – Process AICPA created to address the demand for greater peer review transparency. Nationally uniform system through which CPA firms can satisfy state board or licensing body peer review information submission requirements and retain control over their peer review results.
AMHPassword1

32. Facilitated State Board Access
A secure, limited access website that provides access to the report (and letter of response), acceptance letter and corrective action letter
Where peer review required for licensure/practice permits and BOAs not prohibited access by law
State boards have automatic access to firms with their main office in their state
Firms may request “expanded access” to other states
When firms complete their Scheduling Form they indicate whether they are opting out of FSBA
If a firm opts out, the site will only list the name of the firm and date of its last peer review
Firms are reminded on the Scheduling Form that, depending on the rules of the state board of accountancy, they still may need to submit peer reviews to the state board of accountancy
In states where firms cannot (due to law or regulation) opt out, firms are notified of such requirement
36 - States that require peer review and are not prohibited from accessing results
10 - All other states.
7 - AK, FL, IN, MD, MO, TN and WI (Require peer review but can’t access results)
3 - CNMI, DE and PR (No peer review requirement)

33. Facilitated State Board Access
Means for monitoring firms’ compliance with required remediation
Oklahoma system
Peer Review Oversight Committee monitors FSBA
BOA staff sends notification to firms with pass with deficiency or fail reports that their compliance with required remedial action is being monitored
If firms fail to perform in a timely manner, BOA enforcement action would be opened

34. Administering Entity Home Page
The AE Home Page provides an overview, as well as several tabs to navigate to other areas of the site.

35. FBSA Search
The FSBA Search tool enables users to search for information on an enrolled firm’s previous peer review. The period covered by the peer review, acceptance date, and report grade are provided. Several Peer Review documents are also available: acceptance letter, report, and completion letter (as appropriate).

36. Peer Review Public File
The Peer Review Public File provides the enrollment status of firms in the AICPA Peer Review Program. Firm’s memberships in the AICPA’s Private Company Practice Section (PCPS), Governmental Audit Quality Center (GAQC), and Employee Benefit Plan Audit Quality Center (EBPAQC) are also shown.

37. Available Information Publicly Available vs. FSBA
This firm was opted in to FSBA for the prior peer review (bottom). The firm opted out for the most recently accepted peer review (top).

38. Available FSBA Reports

39. Available FSBA Reports
Enrolled Firms Report
Firm Number
Firm Name
City
State
Program Name
Peer Review Due Date
Last Review Period From
Last Review Period To
Last Review Accepted Date
Last Review Completion Date
AICPA Quality Center Membership
Admin By State
Non AICPA Firm

40. SBOA – Peer Review Oversight Committees
Guiding principles of oversight
Ensure peer review program is effective and uniform
Transparency increases understanding & confidence
UAA Article 7
Rule 7- 4 (b) - “An Oversight Committee shall be appointed by the Board….and report to the Board…”
Rule the Board shall have access to the reports
AICPA Oversight Handbook – Chapter 3

41. Peer Review Oversight Committees
AICPA Recommended PROC structure
3 members
2 CPA members, ideally “team captain” qualified, but at least with extensive accounting and auditing experience at partner level
1 public member, who has utilized public accounting services
Confidentiality agreement
Attend meetings of peer review committee and RABs
Reporting to board of accountancy
Confidentiality Agreement to allow complete access to meetings and same documents as RAB
Attend PRC meetings and RABs – observe process and deliberations, considering appropriateness of report and any remedial action
Make annual (or more frequent) reports to BOA as to effectiveness of operation of peer review program

42. Peer Review Oversight Committees
Individual state considerations:
Size of PROC
Compensation/expense reimbursement of members
Other functions of PROC
Monitoring of remedial action via FSBA
Recommendation of disciplinary action of those not in compliance (from information on FSBA)
Other

43. Role of the Peer Reviewer
Maintain independence, adequate training, and qualifications
Submit and periodically update a peer review resume in the AICPA peer review database
Perform the peer review in accordance with AICPA standards
Communicate results and educate the firm’s personnel about the relevant professional standards where needed
Timely submit materials to the AE
Communicate difficulties and timing issues to the AE

44. Role of the Technical Reviewer
Technically review materials submitted by peer reviewers
Work with the peer reviewers to answer questions and ensure that the peer review documents comply with program standards
Verify peer reviewer qualifications
Coordinate and observe report acceptance body (RAB) meetings to ensure that peer reviews are accepted on a timely basis
Assist peer review committee in monitoring firms and reviewers, and complying with peer review oversight program

45. Role of the Peer Review Committee
Oversees the program administration
Performs biannual oversight of the AE
Performs oversight of peer reviews and peer reviewers and monitors reviewer performance
Handles disagreements and appeals

46. Role of the Peer Review Committee Report Acceptance Bodies
Review the peer review materials for approval
Overriding goal of consistency
RAB may require a change to the report rating or MFC, FFC or other peer review documents
Assign corrective actions or implementation plans as needed
Determine/approve peer review and reviewer oversight selections

47. What do the AEs do? Ensure that the program requirements are met
Enroll firms and track A&A status of firms, firm mergers and dissolutions, etc.
Schedule reviews based on information submitted from the firms
Verify peer reviewer qualifications based on information in the system
Maintain certain firm documents for subsequent review
Assist the peer review committee in communicating decisions
Follow up with firms on corrective actions
Populate information in the FSBA program
Interact with state boards
Maintain peer review directory
Provide occasional assistance in coordinating the reviewer relationship
Provide public with publicly available peer review information including oversight report
Ensure that required oversights are performed
Communicate administrative status to the committee
Invoice firms for annual fees, assessments, and CART review fees
AEs for the AICPA program must agree to administer the program in accordance with the program requirements.
The authorization to administer the program is given by the AICPA and renewed annually.

48. Peer Review Process Firm enrolls with administering entity (AE)
Firm selects peer reviewer
Peer reviewer selection approved by AE
Peer review performed by reviewer
Draft report and workpapers submitted to AE
Technical review performed
Report acceptance body (RAB) reviews and accepts report
Possible corrective actions
Firms enroll when they start performing accounting and auditing engagements
Due date is ordinarily 18 months from the year end of the first engagement
Due date is the latest date for the peer reviewer to complete the peer review and submit it to the administering entity
A peer review cannot begin until AE confirms that the peer reviewer is acceptable - for system reviews, team must match firm in certain industries
Review must go to RAB within 120 days of being submitted to AE
A technical reviewer who is a CPA reviews the engagement and if issues are noted he/she communicates these to the peer reviewer who will respond
After technical review, the peer review is submitted to a “report acceptance body” (RAB) which consists of 3 or 4 committee members who are peer reviewers
RAB accepts review or requests changes
If report is a pass it will generally be accepted without requiring the firm to take further action (Exception - FFCs with repeat findings, the RAB could require an “implementation plan” – these are few and far between)
If the peer review report is pass with deficiencies or fail, corrective action will almost always be required such as: preissuance review of an audit, post-issuance review of an audit, team captain revisit, monitoring report and/or CPE
If corrective actions not completed timely, firm’s enrollment may ultimately be terminated – as will be discussed later in presentation, BOAs can assist with this process.

49. Extensions
Extensions of due date only if requested in writing and for valid reasons
Normally two months maximum
Longer for medical or disaster